Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Blockbuster Reports

Jan 10, 2014

Market Watch with Alan Brugler

January 10, 2014

Blockbuster Reports

The January USDA reports have a reputation for creating market volatility. This is well deserved, with 5 of the past 7 January reports (not counting 2014) resulting in a limit move in nearby corn futures. The focus was on US corn and soybean final production estimates, and first quarter use. The trade knew going in that US corn, wheat and soybean exports were much stronger this year than last year, but feed & residual use is computed from the Grain Stocks report which was issued today. Traders were also interested in how USDA would handle Chinese demand given the MIR-162 issues. On that front, projected Chinese imports were trimmed 2 MMT from 7 MMT to 5 MMT.They likely don’t need the imports, with USDA hiking estimated Chinese production to 217 MMT from 211 MMT in the December report.

Corn futures were up 2.2% this week, thanks to a 20 cent rally on Friday following the USDA reports. USDA reported that only 10.426 billion bushels of corn were in on farm and off farm storage on December 1, about 350 million bushels less than trade analysts had expected. USDA increased estimated feed & residual use by 100 million bushels for the year as a result of the stocks report. That dropped projected ending stocks again, to 1.631 billion bushels and tightened the stocks/use ratio to 12.4%. Estimated cash average price remains at $4.40 for the year.

Soybean futures were up 1.1% this week. Old crop bean futures were higher, but new crop prices dropped sharply. USDA left projected US ending stocks UNCH at 150 million bushels. They are still in price rationing mode. A small yield increase to 43.3 bpa bumped up production to 3.289 billion bushels, but all of the additional supply was immediately allocated to increased crush and export use. Prior to the report, US export commitments had reached 102% of the previous full year forecast, so it was a no brainer for USDA to raise the forecast if the bushels existed. The Brazilian production estimate was raised 1 MMT to 89 MMT due to improved weather.

Wheat futures lost another 6.1% in Chicago this week. KC was down a more modest 2.7% because of strong export sales to Brazil and some freeze damage concerns (which also should have extended to SRW). The spec trade is heavily short wheat and heavily long cattle. Neither position changed this week. USDA did raise projected US ending stocks to 608 million bushels. The Dec 1 wheat stocks number was larger than expected at 1.463 billion bushels, forcing USDA to cut estimated feed use. World ending stocks were also increased. After the close, Egypt came back in the market for mid-February needs, trying to take advantage of the price decline. USDA did show a smaller winter wheat plantings total than previously expected, and showed a shift toward lower yielding acreage in the Dakotas vs. the southern Plains. SRW acreage was also reduced, suggesting a lower national average wheat yield for 2014.

Cotton futures were down 0.49% this week.USDA left US projected ending stocks UNCH at 3 million bales, with offsetting revisions to US production and exports. The midpoint of the cash average price range for the year is now 74.50 vs. 74 cents a month ago and 72.5 last year. World ending stocks continue to balloon, with the estimate for July 2014 now at 97.61 million bales. That is 89% of the current projection for annual consumption.Put another way, the world could go 325 days past harvest without running out of cotton (although it would be darn hard to find those last few bales). USDA did raise estimated Chinese production 1 million bales and raised projected Chinese ending stocks to 58.31 million bales. That would be 60% of the world surplus. If something happened to the global crop, the Chinese would have a corner on the supplies.

Commodity

Weekly

Weekly

Month

12/20/13

12/27/13

01/03/14

01/10/14

Change

% Change

Mar

Corn

$4.33

$4.28

$4.24

$4.33

$0.09

2.18%

Mar

CBOT Wheat

$6.14

$6.09

$6.06

$5.69

($0.37)

-6.07%

Mar

KCBT Wheat

$6.57

$6.44

$6.44

$6.26

($0.18)

-2.72%

Mar

MGEX Wheat

$6.51

$6.35

$6.32

$6.21

($0.11)

-1.78%

Jan

Soybeans

$13.39

$13.32

$12.89

$13.04

$0.15

1.12%

Jan

Soybean Meal

$446.60

$445.70

$424.50

$435.20

$10.70

2.52%

Jan

Soybean Oil

$39.44

$39.02

$38.34

$37.95

($0.39)

-1.02%

Feb

Live Cattle

$133.90

$134.95

$136.20

$136.70

$0.50

0.37%

Jan

Feeder Cattle

$166.98

$167.00

$167.63

$168.65

$1.03

0.61%

Feb

Lean Hogs

$86.25

$85.65

$86.68

$85.83

($0.85)

-0.98%

Mar

Cotton

$83.15

$84.12

$83.31

$82.90

($0.41)

-0.49%

Mar

Oats

$3.49

$3.56

$3.44

$3.87

$0.42

12.27%

Jan

Rice

$15.50

$15.45

$15.76

$15.57

($0.19)

-1.21%

Cattle futures rallied another 50 cents this week.Cash cattle trade was very slow to develop, but some reports of $139/$222 tops filtered in on Friday afternoon. That would be $2 above last week in most areas. Wholesale beef prices were up 6.2% on a Fri/Fri basis in the Choice, and up 7.2% in the Select, assisted by a revision in the way USDA computes cut yields. This price increase is exactly what is needed to support the cash cattle prices being paid. Weekly beef production was up 9.1% from the previous week, but down 8.3% from the same week in 2013. Estimated carcass weights are running 7 pounds above last year’s actual of 796 pounds. USDA increased projected 2014 US beef production to 24.32 billion pounds from 24.205 billion in December. The average cash price for the year is expected to be between $129 and $138, vs. $125.89 in 2013.

Hog futures were down 1% for the week. Higher carcass weights (+5# per head vs. last year) are offsetting the smaller slaughter runs. Pork production for the week was up 5.5% from last week, but down 5.2% from the same week in 2012. USDA reported weekly pork export sales were much improved at 21,600 MT. The afternoon pork carcass cutout value was up $1.26 this week, or 1.52%. Ham prices were the strongest of the primals. On Friday, USDA projected that 2014 pork production would be 1.6% larger than in 2013, at 23.58 billion pounds. The average live hog price for 2014 is expected to be between $60 and $64, compared to $64.05 in 2013.

Market Watch

We’ll start the week still trading the aftermath of Friday’s USDA reports. USDA will update Export Inspections on Monday. January futures contracts for rice and the soybean complex expire on Tuesday.NOPA is due to release their monthly soybean crush estimate for December on Wednesday the 15th. USDA Weekly export sales will be released on Thursday morning. Weekly EIA ethanol production will be out on Wednesday. The markets will be closed the following Monday for the ML King holiday.

Visit our Brugler web site athttp://www.bruglermarketing.com, find our iPad app "AgMarket" in the app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

There is a risk of loss in futures and options trading.Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.